Allowed

In the matter of Shri D.a.Gadgil

SAT30 Oct 2003

Case brief

AI extract

What is this about?

The tribunal held that the denial of an opportunity to cross-examine witnesses whose statements were crucial to the findings of SEBI constituted a breach of natural justice. The order was accordingly remanded to SEBI to afford the appellant this opportunity.

What did the court decide?

The appeal is allowed by way of remand to SEBI to afford the appellant an opportunity to cross-examine the witnesses whose statements were relied upon by SEBI.

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BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

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Appeal No.117/2002 In the matter of: Shri D.A.Gadgil Appellant Vs. Securities & Exchange Board of India & Others Respondent Present:

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Mr. Pradeep Sancheti Advocate Shri Tushar Desai Advocate For Appellant Shri Kumar Desai Advocate Ms. Daya Gupta Advocate Ms. Anitha Anoop Legal Officer, SEBI Shri Amit Daga Manager, SEBI For Respondent

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ORDER

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Order passed by the Chairman, Securities and Exchange Board of India, the Respondent herein, on 24.10.2002, under section 11B of the Securities and Exchange Board of India Act, 1992 is under challenge in the present appeal. The Respondent by the said order had disqualified the Appellant “from holding any public position in any capital market related institution for a period of one year” with effect from the date of communication of the order. The order was communicated to the Appellant on 26.10.2002.

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The background of the order, as revealed in the order is that in the wake of sudden payment crisis in the month of June, 1998 on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) the Respondent had carried out investigations. Since there were certain allegations about the involvement of Shriram mutual fund (SMF) the role of the said mutual fund was also investigated. The investigation report revealed certain irregularities in the matter of investments committed by SMF. In that context the Respondent issued notice to the Shri Ram Asset Management Company (SAM) which was the Asset Management Company of SMF, seeking explanation as to why investment of funds by SAM was not carried out in the best interest of the unit holders of SMF and why it failed to ensure that its acts did not give any undue or unfair advantage to entities having association with sponsors. SAM was also asked to explain why it acted contrary to the provisions of the trust deed and mutual fund regulations notified by the Respondent. SAM replied to the notice and also made oral submissions before the Respondent. The Respondent adjudicated the notice. SEBI in its adjudication held the Appellant, who was the Managing Director of SAM also responsible to the omissions and commissions of SAM in the matter. In that context SEBI directed inter alia that “Shri Gadgil shall not be eligible to hold any public position in any capital market related public institution for a further period of 3 years from the date of the order. The order was issued on 1.2.2000. Shri Gadgil challenged the said order by filing an appeal in the Tribunal. The main thrust of his attack against the order was that it was passed without giving him sufficient notice/opportunity of being heard. The Tribunal after hearing the Counsel for the parties and

In the matter of Shri D.a.Gadgil — Securities and Capital Markets | SAT (2003)

Allowed

In the matter of Shri D.a.Gadgil

SAT30 Oct 2003

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Case brief

AI extract

What is this about?

What did the court decide?

The appeal is allowed by way of remand to SEBI to afford the appellant an opportunity to cross-examine the witnesses whose statements were relied upon by SEBI.

¶1

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

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Appeal No.117/2002 In the matter of: Shri D.A.Gadgil Appellant Vs. Securities & Exchange Board of India & Others Respondent Present:

ORDER

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such hearing. Thereafter another letter dated February 23, 2001 was issued to him affording him an opportunity of personal hearing on March 1, 2001. He had repeated his request for cross-examination through another letter of his dated 27^th February, 2001. On March 01, 2001 the Appellant along with his lawyer had appeared before the chairman of the Respondent and argued on the right for cross-examination. In the course of the hearing, the Respondent directed the Appellant to submit written submissions. Thereafter, vide letter dated 7 March, 2001 the Appellant submitted a note in support of his right to cross examine and repeatedly insisted for an opportunity to cross examine. In the note submitted, he had cited authorities in favour of his right for cross examination. However, no written submission on merits or other aspects was submitted by him. After having waited till October 17, 2001, the Respondent sent a letter to the Appellant, asking him to file written submissions. In response to the said letter, the Appellant sent another letter dated October 19, 2001 referring to his note attached to the earlier letter of March 7, 2001 on cross-examination. On January 22, 2002 the Respondent had issued a letter to the Appellant asking them to clarify how the Appellant would be prejudiced in the absence of an opportunity to cross-examine. A letter dated January 22, 2002 was also issued to the Appellant stating that a personal hearing was scheduled before the Chairman, SEBI on February 15, 2002. The Appellant issued a letter to the Respondent on 28.10.2002 asking for confirmation for the presence of Shri Nitin Doshi and Shri Jaysukhlal Jagjivan during the hearing. Again another letter dated January 30, 2002 was sent to the Respondent in which it was said that if the Respondent proceeds by relying on the statements made by Shri Nitin Doshi and Jaysukhlal Jagjivan, it would cause prejudice to the Appellant if they are not afforded an opportunity to cross-examine those witnesses. The hearing was finally scheduled for 28^th August,2002. The Respondent vide letter dated August 23, 2002 informed the Appellant that in the scheduled hearing, he may submit his arguments with reference to crossexamination and also on the merits of the case since there was a change in the hearing authority. The Appellant had appeared with his counsel. The counsel argued on their right to cross-examine Shri Nitin Doshi and Shri Jaysukhlal Jagjivan and insisted for a ruling on the issue of cross-examination. The counsel for the Appellant was asked to make submissions on

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allegation about the receipt of Rs.1,08,00,000/- by Springfield Securities Ltd. from Joy Holdings Pvt. Ltd. has no relevance to the Appellant. Further, admittedly SSL had paid only a sum of Rs.70,00,000/- to the broker against its liability exceeding Rs.1 crore, towards purchase of the said shares. The broker has admitted that it has part financed the purchase of the said shares from its own funds. The allegation about the sale of certain fundamentally strong scrips to finance the purchase of the Videocon shares is not correct. All the shares were sold in ordinary course of business and not with a view to finance the present deal. Further, in majority of the cases the price of the shares so sold actually fell after the sale by the SAMC. Thus showing how baseless is the allegation of SEBI in this behalf. The sum of Rs.38,00,000/- paid by SMF to SSL was in respect of separate and independent transaction and has no relation to the instant case. SEBI has not even alleged and in any case, there is nothing to show that the payment of Rs.38,00,000/- was by way of part payment or advance towards the transactions in question or that the said payment was in any way adjusted and/or appropriated towards the transaction in question. The decision to invest in the shares whose price was continuously falling was with intent and hope of a turn around in the scrip price. In fact the price of the Videocon shares did show smart recovery in 6 months time, which could have fetched the fund a healthy return of more than 25% on its investment. The findings of the SEBI that the Appellant has indulged in fabrication of documents is clearly a finding amounting to fraud and which required a very strong and satisfactory proof, however, the said finding is inherently misconceived in as much as – (i)on one hand SEBI has sought to reply upon the statement of Broker to justify back dating of the letters, but on the other hand SEBI has stated that it is not relying the said statement for the purpose of the impugned Order; (ii) In any case, even according to the Broker the said letters have been issued/received on 22-06-1998.

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that the transactions as recorded in the Contract Note as correct in all respects. If the Appellant’s contention that the said transaction was dated 19^th June 1998 was correct, payment and delivery would have to be made and effected as per the payment and delivery schedule of settlement 13. Admittedly this was not done. Since the seller i.e. Spring Fields Securities Ltd., had purchased 2,14,100 shares of Videocon on 19^th June 1998 i.e. Friday (i.e.) last day of Settlement no.13 of the B.S.E.) after trading hours and which trade was entered into the B.S.E. system, after trading hours, it is not possible for the seller to have sold 1,20,100 shares out of the said purchased shares earlier i.e. during trading hours on the 19^th June 1998. If the transaction took place as claimed on 19^th after trading hours there is no reason why the same could not have been entered into the system along with the said purchase. But this was not done. It can therefore be safely assumed that the said transaction did not take place on the 19^th June 1998. The next 2 days i.e. 20^th and 21^st June, 1998 being Saturday and Sunday respectively, the said transaction could not and did not take place on these 2 days. If the transaction had taken place on 22^nd or 23^rd June, 1998 i.e. Monday and Tuesday respectively, there is no reason why the same could not be reported on these 2 dates. The internal bifurcation of the trades amongst the different schemes could be done subsequently. Since the volume of shares transacted on BSE on 22^nd and 23^rd June 1998 was 900 and 2600 shares respectively the said transaction did not take place on these 2 dates nor was it reported on these 2 dates. It was also seen that a letter dated 23^rd June, 1998 was written by SSL to JSBPL, asking the broker to sell 1,20,000 shares of Videocon. Since the letter is dated 23^rd June 2000 the sale could have taken place only on or after this date. Statements of the broker were recorded in which Shri Nitin Doshi, director of JSBPL, stated that the transaction for 1,20,100 shares of Videocon between SRMF and SSL was executed on 24^th June 1998 and it was a negotiated deal between the buyer and the seller which was routed through the stock exchange through his terminal as a cross deal. A letter was sent by SRMF on 22^nd June 1998 to JSBPL though dated 15^th June 1998 asking JSBPL to purchase 1,20,000 shares. JSBPL in turn executed the contract and by a letter dated 19^th June 1998 informed SRMF that required procurement of 1,20,000 shares of Videocon @ Rs.85/- has been completed. The said letter

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for the purpose of principles of natural justice. The aim of both administrative inquiry as well as the quasi judicial inquiry is to arrive at a just decision and if a rule of natural justice is calculated to secure justice or to put it negatively to prevent miscarriage of justice, it is difficult to see why it should be applicable only to quasi judicial inquiry and not to administrative inquiry. It must logically apply to both”. Having said so the Court further stated that “fair play in action requires that the procedure adopted must be just fair and reasonable. The manner of exercise of the power and its impact on the rights of the person affected would be in conformity with the principles of natural justice. Article 21 clubs life with liberty, dignity of person with means of lively-hood without which the glorious content of dignity of person would be reduced to animal existence. When it is interpreted that the colour and content of procedure established by law must be in conformity with the minimum fairness and procedural justice, it would relieve legislative callousness despising opportunity of being heard and fair opportunities of defence. Article 14 has a pervasive processual potency and versatile quality, equalitarian in its soul and allergic to discriminatory dictates. Equality is the antithesis of arbitrariness. It is, thereby, conclusively held by this court that the principles of natural justice are part of Article 14 and the procedure presented by law must be just fair and reasonable.………………….It is thus well settled that right to life enshrined under Article 21of the Constitution would include right to lively-hood. The order of termination of the service of an employee/workman visits with civil consequences of jeopardising not only his/her lively-hood but also career and lively-hood of dependents. Therefore, before taking any action putting an end to the tenure of an employee/workman fair play requires that a reasonable opportunity to putforth his case is given and domestic inquiry conducted complying with the principles of natural justice”.

In the matter of Shri D.a.Gadgil

Case brief

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In the matter of Shri D.a.Gadgil

Case brief

What is this about?

What did the court decide?

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

Similar cases

What the court decided

A compact analysis

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